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Are trade deficits a good thing or a bad thing?
econdataus ^ | 21 June 2012 | me

Posted on 06/21/2012 11:06:18 AM PDT by moonshot925

The United States had a trade surplus every year from 1894 to 1970.

The trade deficits started in 1971.

1975 was the last year the United States had a trade surplus.

We have had a trade deficit every year since 1976.


TOPICS: Chit/Chat
KEYWORDS: deficit; trade; tradedeficit; tradesurplus
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1 posted on 06/21/2012 11:06:22 AM PDT by moonshot925
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To: moonshot925

They are meaningless, goods trade for goods.


2 posted on 06/21/2012 11:10:57 AM PDT by fortheDeclaration (Pr 14:34 Righteousness exalteth a nation:but sin is a reproach to any people)
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To: moonshot925

According to Thomas Sowell (everybody here PRETENDS to read him for obvious reasons), and Walter Williams, and Milton Friedman, and Steve Landsburg there is no such thing as a trade deficit (they are correct). I’ll let doubters read those men in their own words for the simple explanation.


3 posted on 06/21/2012 11:11:23 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: fortheDeclaration

You are 100% correct. 1 in 100 will grasp the argument.


4 posted on 06/21/2012 11:12:29 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: moonshot925
It depends. Continual large trade deficits are not good. You end up like Greece, bankrupt or at least very poor.

Continual large surpluses are also not good. You might end up like China, building ghost cities and misallocating capital, finally forced to revalue their currency anyway. Or like Germany, who created the Euro to juice their export markets. It worked too well, now they have to either finance their trading partners, see them leave the Euro, or leave the Euro themselves. Or you might end up like Saudi Arabia, a few at the top get to spend the money while the rest live of a government dole. When the oil runs out, so will the false prosperity.

Since the US has run large trade imbalances for decades, you might ask why it hasn't ended up like Greece. There are several reasons, the primary ones are: the role of the US dollar as the primary reserve currency, the perception of the US as a "safe haven", the size and strength of the US economy, and a AAA credit rating, until now.

5 posted on 06/21/2012 11:20:06 AM PDT by Former Proud Canadian (Obamanomics-We don't need your stinking tar sands oil, we'll just grow algae.)
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To: moonshot925
“Trade deficits” are the most demagogic and misunderstood thing on earth.
6 posted on 06/21/2012 11:23:39 AM PDT by youngidiot (Hear Hear!)
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To: youngidiot

How many times must Thomas Sowell (whom EVERYBODY around here swears to read religiously) explain this simple concept before people grasp it?


7 posted on 06/21/2012 11:28:25 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: moonshot925

Are trade deficits good or bad? There is no correct answer.

when they are paid for with backed-by-nothing pieces of paper, in exchange for TV’s and plastic toys from Asia, its probably bad for everyone - including those left holding the dollars!


8 posted on 06/21/2012 11:35:05 AM PDT by PGR88
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To: PGR88

If I get a tv or a Honda for a bunch of worthless paper, how is that bad for me?

Why would the intellgient Japanese give me a Honda in exchange for a pile of worthless paper?


9 posted on 06/21/2012 11:39:40 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Doctor 2Brains

Well, I for one can’t grasp his logic.

His example is that US trade surpluses did not seem particularly helpful in the Great Depression, or that US trade deficites were not particularly hurtful in the 1990s.

Where is the evidence that trade surpluses did not help us in the Great Depression. We had massive deflation. Is it not possible that the trade surpluses slightly offset the massive deflation? If so, with still massive economic contraction, it would be hard to measure the value of the trade surpluses.

Then in the 1990s, how do you measure the impact of the trade deficits in light of the MASSIVE credit expansion.

You would have to have a society where there was no deflation and no credit expansion, and then see the effect of a trade deficit or surplus in that controlled environment.

I do appreciate Sowell’s argument that trade imbalances don’t occur in a vacuum. As he says, our deficit in automobile trade gets offset somewhat when our trading partners invest in new auto manufacturing plants, returning some of that imbalance back to us as investments.

I get that.

All I know is that during the 1950s we were massive net exporters of goods and our economy soared.

Since the 1970s we have had very large trade imbalances where we imported far more than we exported, and over that time our living standards have steadily eroded.

I would need Sowell to explain it, but I find it impossible to believe those were just coincidences — that prosperity coincided with massive exports, while decline coincided with massive imports.

Then there is the ascendency of the Chinese economy? Who in their right mind doesn’t understand that the Chinese economy has gained almost solely from massive exports and large trade imbalances in their favor with many nations?

The same was true in the soaring Japanese economy.

You can quote Sowell all you want, but I would need him to explain to me why our economy soared in the 1950s and why Japan and massive China and tiny Japan became economic powerhouses, without any discussion of trade deficits and exporting goods and services to the world.

Have at it. I am anxious to learn.


10 posted on 06/21/2012 11:47:54 AM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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To: Doctor 2Brains

As if those worthless scraps of paper don’t represent a lifetime of my labor output.

I am not trading paper for goods. I am trading my time-valued labor output for goods. The paper is just a temporary storage medium for my labor output. OK, our collective labor output.

It is why some currencies are stronger than others. US productivity is very high and that is still reflected in our currency. Ditto Germany and the yen. There is a reason the Lira was the Lira and the Peso was the Peso.


11 posted on 06/21/2012 11:51:12 AM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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To: Freedom_Is_Not_Free

You are conflating two issues — a trade imbalance with another nation, which can and does occur, but is 100% beneficial to both parties, and an overall trade deficit, which is impossible and cannot occur. If you want to know how and/or why not read Sowell, Williams, Friedman, etc.


12 posted on 06/21/2012 11:54:16 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Freedom_Is_Not_Free

Why would the intellgient Japanese give me a Honda in exchange for a pile of worthless paper?


13 posted on 06/21/2012 11:55:17 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Doctor 2Brains

It sounds like you are using semantics. A raw trade deficit is mathematically impossible, but you must know full well that when we use the term “trade deficity” it is conventionally accepted to mean a trade imbalance between nations.

So when we say the USA experienced a record “trade deficit” it simply means that the value of what we imported was at a record high against the value of what we exported.

I don’t know what phrase you would use for that concept, but it sounds to me like you are berating the use of a technically sloppy phrase rather than disagreeing with an economic concept.


14 posted on 06/21/2012 11:58:52 AM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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To: Doctor 2Brains

It’s one of those things (private monopolies are BAD, trade deficits are bad, the “wage gap” needs to be corrected, etc) that has been so drilled into the public that not even reason stands a chance.

I’ve tried explaining it with the grocery store analogy. I run a trade deficit with the grocery store (I buy their goods, they never buy mine). The more money I make, the more groceries I buy, the bigger my “deficit” becomes. Is this a bad thing?


15 posted on 06/21/2012 12:04:00 PM PDT by youngidiot (Hear Hear!)
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To: Freedom_Is_Not_Free

In your 1st para, you say “trade deficit” is accepted to mean trade imbalance between nations.

In your 2nd para, you say the opposite.

Regardless... a trade balance between nations is possible, it happens, and it is meaningless.

An overall trade balance is impossible.


16 posted on 06/21/2012 12:04:13 PM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Doctor 2Brains

The paper isn’t worthless. It represents face value in its denominated currency. Both the Honda car and the pile of paper represent an equivalent labor, differing only by the relative value of the currencies of the two countries.

Like I said, I don’t know what term you want to use to represent a large imbalance in trade. If my population has to work 40 hours a week to buy what your population produces in 10 hours a week, then my population is going to send all of its labor value to you in exchange for 25% of its labor value to me. That leaves 75% of its labor value to consume or trade with others.

They gain relative wealth. We lost relative wealth.

What am I missing? I know I made a simplistic example, but what am I missing here?


17 posted on 06/21/2012 12:04:24 PM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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To: moonshot925
It really doesn't matter. If we show a current account deficit it just means we have a capital account surplus. Or vice versa. Either way, the balance of payments is always equal.

Historically, our manufacturing, gdp and employment increase the most when our trade deficit is expanding the fastest.

They give us goods and services and we give them dollars. They can either use those dollars to buy our goods and services or invest in our economy. Either way, it's good for us.

18 posted on 06/21/2012 12:06:17 PM PDT by Mase (Save me from the people who would save me from myself!)
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To: Freedom_Is_Not_Free

We are talking about 2 different things. Let’s take these 2 populations you discuss. The 10 hour a week pop. will be and is wealthier than the other pop. Period. But this has NOTHING whatever to do with any sort of trade def. or trad imbal. The poorer pop. could take 100% of its accumulated labor, valued at say X amount and trade it. In exchange for X value, they will receive exactly and precisely X amount of goods. Period.

If they traded with the richer pop., the richer pop will still have more stuff left over with which to trade with others; that just makes them richer. If my neighbor works at my house 40 hours a week 52 weeks a year, he has given me X amount of services. I’m way richer than he is. I give him X amount of paper. We are 100% even in our exchange. I still have 10X amount of paper to trade with others. What has this to do with a trade def?


19 posted on 06/21/2012 12:11:10 PM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: youngidiot

I know what they say when you use the GS analogy... “Yeah, but you’re using the same currency! That’s not what happens when we trade with china!”


20 posted on 06/21/2012 12:12:29 PM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Doctor 2Brains

I have heard some people say that tariffs are a good thing to reduce our trade deficit.

Bad idea?


21 posted on 06/21/2012 12:23:37 PM PDT by moonshot925
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To: moonshot925

Not necessarily, if you don’t mind paying more money for your stuff, regardless of whether it is produced here or not.


22 posted on 06/21/2012 12:31:58 PM PDT by 1rudeboy
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To: moonshot925

What’s a trade deficit? Why do we care?


23 posted on 06/21/2012 12:33:02 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Doctor 2Brains
It's futile. They take the belief as a matter of faith.

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this [absurd] doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium." - Adam Smith

John Maynard Keynes is responsible for much of this obsession over "trade deficits".

Last time we had a trade surpluses was during the wonderful Carter years. When all of us were f**king broke (back to the grocery store example). Do all of these pseudo intellectuals arguing that "trade deficits" are bad wish that upon us? They're like idiotic liberals when it comes to this debate. Like I said, it's futile.
24 posted on 06/21/2012 12:37:29 PM PDT by youngidiot (Hear Hear!)
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To: Doctor 2Brains
“Yeah, but you’re using the same currency! That’s not what happens when we trade with china!”

Whenever I buy Chinese (or German, Japanese, Italian, South Korea or American) products, I use US dollars.

25 posted on 06/21/2012 12:39:14 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: moonshot925

1. Trade deficits are impossible.
2. A tariff is a tax. If you wanted to buy X at Y price, and a tariff makes is Y + Z, you (a) will no longer buy it, which is bad, because both you and the seller are now poorer than you otherwise would have been, or (b) might buy it anyway, but spend more of your waking life working/paying for it than is necessary, and that is bad. Also, the gov. will be working (with your money) to keep an inefficent producer in business. Said producer uses N + P resources to produce a product, while his tariff burdened competitor uses only N to produce it. Bad.
A tariff does not reduce deficits, it makes many people poorer and transfers wealth from you to government favored maggots.


26 posted on 06/21/2012 12:51:19 PM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: youngidiot

Yep. It’s like tryin’ to tell a lib that an “assault rifle” is not a futuristic killing machine, only slightly less lethal than an ICBM.


27 posted on 06/21/2012 1:01:07 PM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: moonshot925

When the US has an unfavorable balance of payments with another country, that country has more funds to invest in America and buy our products.A massive inflow of foreign funds is beneficial to capital accumulation in America and economic development of America in the long run.Any decrease in the money supply of America by a negative balance of payments can be replenished by creating money out of thin air.


28 posted on 06/21/2012 1:22:58 PM PDT by mjp ((pro-{God, reality, reason, egoism, individualism, natural rights, limited government, capitalism}))
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To: Former Proud Canadian
Continual large surpluses are also not good. You might end up like China, building ghost cities and misallocating capital, finally forced to revalue their currency anyway. Or like Germany, who created the Euro to juice their export markets.

Trade surpluses, in and of themselves, are neither bad nor good. They are simply a reflection of a country's monetary policy. The U.S. runs an extremely inflationary monetary policy and, therefore, runs a high trade deficit. Germany maintains a relatively stable monetary policy (as Japan did until just this year) and runs a surplus.

China is in the process of inflating wildly and its trade surplus is declining rapidly.

It's false to claim that trade deficits must be "financed." They don't. Good post.

29 posted on 06/21/2012 3:42:15 PM PDT by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: Freedom_Is_Not_Free
All I know is that during the 1950s we were massive net exporters of goods and our economy soared.

Since the 1970s we have had very large trade imbalances where we imported far more than we exported, and over that time our living standards have steadily eroded.

But you are treating the trade balance as the only thing that's changed. You also have to take into account that the federal deficit has exploded, regulations on business have multiplied, and the Fed's monetary policy has continued to make the dollar more and more worthless.

All of those contribute to our falling circumstances. The trade deficit is just a symptom -- not the cause.

30 posted on 06/21/2012 4:02:06 PM PDT by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: BfloGuy
It's false to claim that trade deficits must be "financed."

Sorry, I don't follow you. Chronic, continual, large trade deficits must be paid for in some way. Unless you can truly enslave another country, you must pay for your imports from that country. Payment must be in terms of goods or services or, if you happen to possess the world's reserve currency, bits of paper or even bits of electrons on a digital account will suffice.

31 posted on 06/21/2012 4:53:03 PM PDT by Former Proud Canadian (Obamanomics-We don't need your stinking tar sands oil, we'll just grow algae.)
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To: Former Proud Canadian
It's false to claim that trade deficits must be "financed."

Sorry, I don't follow you. Chronic, continual, large trade deficits must be paid for in some way.

When I buy stuff, I pay cash. So why does my purchase of Japanese electronics or Swiss chocolate, both of which increase our trade deficits, have to be financed again?

32 posted on 06/21/2012 5:08:17 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

Ok, read my post 31. Your purchase of Japanese electronics with US cash dollars is already financed by US cash dollars. You are trading bits of paper for real goods. As long as the producers of the real goods will accept your fiat money, everybody is happy.


33 posted on 06/21/2012 5:13:51 PM PDT by Former Proud Canadian (Obamanomics-We don't need your stinking tar sands oil, we'll just grow algae.)
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To: BfloGuy
Anyone who discusses economics, and begins their datapoints in the 1970's, needs to consider the OPEC oil crisis of that era. If they do not, it's more probable than not that they are simply trying to score political points.

Seriously, check it out . . . the next time you see someone start during the 1970's, they are probably playing an entirely different angle.

34 posted on 06/21/2012 5:50:54 PM PDT by 1rudeboy
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To: Former Proud Canadian
Your purchase of Japanese electronics with US cash dollars is already financed by US cash dollars.

My understanding of the word "financed" is "paid for with borrowed money".

35 posted on 06/21/2012 6:00:04 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: BfloGuy

No, I heartily agree. We didn’t wake up one morning with a severe trade deficit out of the blue. It was the result of a lot of failed policies and practices.

I just don’t like to see people sugar coat our failed trade policies that are among the contributing factors to our reduced standard of living, as if it is a good thing or is at least neutral.


36 posted on 06/21/2012 9:32:05 PM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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To: Freedom_Is_Not_Free

Are you willing to argue that your standard of living is lower than it was during the 1970’s?


37 posted on 06/22/2012 4:52:14 AM PDT by 1rudeboy
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To: Freedom_Is_Not_Free
I just don’t like to see people sugar coat our failed trade policies that are among the contributing factors to our reduced standard of living

The ability to purchase goods from around the world raises our standard of living.

38 posted on 06/22/2012 7:59:29 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
No.

Purchasing things does not increase your standard of living. At least not in the long term.

Your standard of living goes up when your wealth is increasing.
Wealth increases because you are engaging in productive work.
People engage in productive work because they are being paid.
If people are paying for goods manufactured in other countries, this negatively impacts the amount of productive work, and the amount of wealth, and the standard of living in the USA.

39 posted on 06/22/2012 8:05:31 AM PDT by ClearCase_guy
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To: ClearCase_guy
Purchasing things does not increase your standard of living. At least not in the long term.

Really? You have a very confused understanding of the term.

Your standard of living goes up when your wealth is increasing.

And when you are able to use your "wealth" to purchase what you'd like, from other countries even, your standard of living improves.

40 posted on 06/22/2012 8:12:24 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

You are asserting that our sending money overseas makes us richer and increases our standard of living?


41 posted on 06/22/2012 8:14:40 AM PDT by ClearCase_guy
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To: Doctor 2Brains

“pile of worthless paper?”

It has the potential to be worthless but it isn’t worthless now is it?


42 posted on 06/22/2012 8:15:14 AM PDT by CodeToad (Homosexuals are homophobes. They insist on being called 'gay' instead.)
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To: Toddsterpatriot

“And when you are able to use your “wealth” to purchase what you’d like, from other countries even, your standard of living improves. “

Unless your country’s currency takes a dive due to imbalances of trade.


43 posted on 06/22/2012 8:17:44 AM PDT by CodeToad (Homosexuals are homophobes. They insist on being called 'gay' instead.)
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To: CodeToad

Precisely my point.


44 posted on 06/22/2012 8:23:26 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: Doctor 2Brains

Hate to tell you this but that paper cannot be worthless as the US government has put up the lands of the US as collateral.


45 posted on 06/22/2012 8:25:51 AM PDT by CodeToad (Homosexuals are homophobes. They insist on being called 'gay' instead.)
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To: ClearCase_guy
You are asserting that our sending money overseas makes us richer and increases our standard of living?

Why do you purchase anything? Because you value the good (or service) more than you value the money. Why does the seller take your money for their good? Because they value the money more.

Any voluntary transaction benefits both the buyer and the seller.

Is your standard of living improved by the coffee you drink in the morning before you go to work? Is that changed if the coffee is grown in another country?

Come on, basic microeconomics.

46 posted on 06/22/2012 8:34:07 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: CodeToad
Unless your country’s currency takes a dive due to imbalances of trade.

Then it is possible that a US produced good will be better able to improve my standard of living than a foreign good.

47 posted on 06/22/2012 8:38:15 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: CodeToad

Again my point.

The trade deficit moaners have this idea that we’re in trouble because we give worthless paper to the Chinese and Japanese in exchange for Hondas and shirts. My point is that if we give X amount of paper to the Japanese for a Honda it is because X amount of paper is not worthless, but is in fact worth exactly and precisely what the Honda is worth.


48 posted on 06/22/2012 8:39:24 AM PDT by Doctor 2Brains (If the government were Paris Hilton, it could not score a free drink in a bar full of lonely sailors)
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To: CodeToad
Hate to tell you this but that paper cannot be worthless as the US government has put up the lands of the US as collateral.

Prove it?

49 posted on 06/22/2012 8:43:35 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
Basic microeconomics:

I grow vegetables; you are a carpenter. I want your service; you want my vegetables. We exchange money and we both feel like we came out ahead. I get that. Free exchange of money for goods and services is a good thing.

Global trade:

There is a peasant in China with a life expectancy of 40. He makes $1000 a year, with no benefits. He lives next to a hellaciously polluted river. He works in a dangerous factory manufacturing TVs. You, on the other hand, live in a nice American suburb. You lost your manufacturing job, and you are living on unemployment right now. But your standard of living isn't too bad -- you just bought this super cheap TV from China. It's amazing how they can sell this stuff so cheap and still stay in business!!!!

American workers are competing with people who have wretched lives. They work cheaper than we do. Which is why they have jobs and we do not. It's becuase we send our money overseas and we tell ourselves that this is making us rich. Hey! Look! I got a TV!

50 posted on 06/22/2012 8:43:36 AM PDT by ClearCase_guy
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